Potential Impact of Executive Orders on Community Banks

In what was has been a busy first week for the new administration with the release of numerous Executive Orders (EOs) from the White House, several EOs have a direct or indirect impact on community banks. The following is a highlight of several orders and their anticipated or potential impact. 

One of the most significant EOs to the industry is titled, Regulatory Freeze Pending Review, whereby government agencies may not propose or issue any rule, including sending it to the Office of the Federal Register (OFR), until a department or agency head reviews and approves the rule. The Director or Acting Director of the Office of Management and Budget (OMB) has the ability to exempt any rule from the EO deemed necessary to address emergency or other urgent situations. Rules which had been sent to OFR but not yet published are to be withdrawn for review and approval.  

Additionally, the agencies are to consider postponing for 60 days the effective date of any rule that had been published in the Federal Register but had not yet taken effect for the purpose of reviewing any questions of fact, law, and policy that the rules may raise. During the 60-day period, where appropriate and consistent with applicable law, the agencies are to consider opening a comment period to allow interested parties to provide comments about issues of fact, law, and policy raised by the rules postponed, and consider reevaluating pending petitions involving such rules. The 60-day period may be extended, where appropriate and consistent with applicable law. Use of the word “rule” within the EO includes guidance, advanced notice of proposed rulemaking, notices, proposed and final rules. A pause on regulation is common when administrations change.  

Equally significant are EOs which Designate Chairmen and Acting Chairmen, Acting Cabinet and Cabinet Level Positions, Sub-Cabinet Appointments, and Cabinet and Cabinet-Level Appointments. Through the series of these orders, key leadership designations and appointments for agencies have been made allowing affected industries to begin anticipating the interests, priorities, and perspectives of agency and department heads. Designations and nominations include: 

• Travis Hill, Acting Chairperson of the Board of Directors of Federal Deposit Insurance Corporation 

• Andrew Ferguson, Chair of Federal Trade Commission 

• Mark Uyeda, Acting Chair of Securities and Exchange Commission 

• Jeffrey Hall, Chair of Farm Credit Administration Board, Farm Credit Administration   

• David Lebryk to act as Secretary of Treasury, Scott Bessent nominated as Secretary of Treasury  

• Gary Washington to act as Secretary of Agriculture, Brooke Rollins nominated as Secretary of Agriculture 

• Everett Woodel to act as Administrator of Small Business Administration, Kelly Loeffler nominated as Administrator of Small Business Administration 

• Matthew Ammon to act as Secretary of Housing and Urban Development, Eric Turner nominated as Secretary of Housing and Urban Development 

• Ingrid Kolb to act as Secretary of Energy, Christopher Wright nominated as Secretary of Energy 

• Matthew Vaeth to act as Director of OMB, Russell Vought nominated as Director of OMB 

Wisconsin is represented in the nomination of persons serving on a national level with Sean Duffy having been nominated as Secretary of Transportation.  

 In an EO titled, Initial Rescission of Harmful EOs and Actions, seventy-eight EOs from the previous administration stretching from 2021 to last week were rescinded. Within the list rescinded was EO 14030 from May 2021 regarding Climate-Related Financial Risk. In the 2021 order, financial institutions were criticized for the “failure…to appropriately and adequately account for and measure…” the impact of extreme weather risk resulting in supply chain disruptions. The order required the Financial Regulators to conduct an assessment which included a determination of how identified climate-related financial risk can be mitigated, including through new or revised regulatory standards. These efforts resulted in several new burdensome and costly requirements, such as SEC investor disclosures about climate-related risks, emissions, and targets for public companies, including banks.  

Another notable order rescinded was EO 14110: Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence (AI) from October 2023, which encouraged creating AI-related policies which promoted responsible innovation, competition, and collaboration while being safe and secure.  

Other EOs rescinded by the new order included topics of diversity, equity, inclusion, and accessibility (DEI), immigration, and energy-related issues involving oil, gas, wind, and water uses. The rescissions will likely affect community banks from the standpoint of their impact on their customer base, e.g., business customers whose employee base include immigrants, customers with a connection to energy and energy-related fields, and potentially in DEI-related efforts. Other energy-related EOs (Declaring a National Energy Emergency, Unleashing Alaska’s Extraordinary Resource Potential, Unleashing American Energy) will also impact customers in such industries with new or revised business needs.  

Through the America First Trade Policy  EO, the new administration seeks to prioritize domestic production and reduce trade-related uncertainties. This policy could influence credit demands in local markets. Community banks may see changes in small-business borrowing trends as industries adapt to a new trade environment. New employment opportunities may also be experienced as businesses expand to meet new or increased product and service demands.  

As a result of the Delivering Emergency Price Relief for American Families and Defeating the Cost of Living Crisis EO, department and agency heads are to deliver emergency price relief through:   

• Lowering the cost of housing and expanding the housing supply  

• Eliminating administrative expenses and rent-seeking practices that increase healthcare costs  

• Eliminating requirements that raise the costs of home appliances  

• Creating employment opportunities for American workers and draw discouraged workers into the workforce  

• Eliminating climate policies that increase the costs of food and fuel  

While the executive order aims to reduce costs and stimulate economic activity, its success depends on implementation and broader market responses. These cost savings should impact deposit balances and lending needs with customers having greater purchasing power from the savings reflected in lowered living costs.  

Several EOs directly affect federal agencies whereby each are to find efficiencies, freeze hiring, and return to the office. An order establishing the President’s Department of Government Efficiency (DOGE), the department, together with the OMB Director, is required to submit a plan within 90 days to reduce the size of the Federal Government’s workforce through efficiency improvements and attrition, at which point the hiring freeze will be lifted except for the IRS, for which the freeze is indefinite.  

Within this DOGE EO there is a mandate regarding Modernizing Federal Technology and Software to Maximize Efficiency and Productivity. Potential positive benefits to community banks include if federal agencies “improve quality and efficiency of government-wide software, network infrastructure, and information technology (IT) systems. Among other things, the United States Digital Services Administrator shall work with Agency Heads to promote inter-operability between agency networks and systems, ensure data integrity, and facilitate responsible data collection and synchronization.”  

The Hiring Freeze EO directs agencies not to fill any vacant federal positions or create any new roles (with exceptions for military personnel and positions related to immigration enforcement, national security, or public safety). By freezing new hires across federal agencies, including those overseeing financial regulation, this order could create operational bottlenecks for community banks seeking regulatory guidance, delay examinations, and cause delays in processing and disbursement of government-backed loans. Impact will depend on how long the freeze remains in effect and whether exemptions are granted for key regulatory and operational positions. Community banks should prepare for potential delays and adjust their interactions with federal banking agencies accordingly. Community banks will also notice a change in federal regulator staff locations as federal employees have been ordered to end remote work and Return to Work In-Person at their respective duty stations on a full-time basis as soon as practicable, unless an exemption is necessary.  

The EO issued last Thursday, Strengthening American Leadership in Digital Financial Technology, will have a significant impact on community banks. While promoting and protecting fiat currency, the EO seeks to bring regulatory clarity of digital assets. For purpose of the order, “digital asset” refers to any digital representation of value that is recorded on a distributed ledger, including cryptocurrencies, digital tokens, and stablecoins. The order defines “Central Bank Digital Currency (CBDC)” as a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank. The term “blockchain” means any technology where data is:  

• Shared across a network to create a public ledger of verified transactions or information among network participants; 

• Linked using cryptography to maintain the integrity of the public ledger and to execute other functions;  

• Distributed among network participants in an automated fashion to concurrently update network participants on the state of the public ledger and any other functions; and 

• Composed of source code that is publicly available. 

This order revokes EO 14067: Ensuring Responsible Development of Digital Assets and the Treasury’s “Framework for International Engagement on Digital Assets” both from 2022. Treasury is also ordered to rescind all policies, directives, and guidance issued pursuant to the 2022 order and framework.  

Further, the order establishes the National Economic Council the President’s Working Group on Digital Asset Markets to be chaired by the Special Advisor for AI and Crypto. The working group is also to include the Secretary of the Treasury, Attorney General, Secretary of Commerce, Secretary of Homeland Security, OMB Director, Assistant to the President for National Security Affairs, Assistant to the President for National Economic Policy, Assistant to the President for Science and Technology, Homeland Security Advisor, Chairman of the SEC, and Chairman of the CFTC. 

Within 30 days of the order, certain agencies are to identify all regulations, guidance documents, orders, or other items that affect the digital asset sector. Within 60 days, each are to submit recommendations on whether each identified regulation, guidance document, order, or other item should be rescinded or modified, or, for items other than regulations, adopted in a regulation. Within 180-days, a report is to be made to the President which is to recommend regulatory and legislative proposals that advance the policies established in the order. In particular, the report is to:  

• Propose a Federal regulatory framework governing the issuance and operation of digital assets, including stablecoins, in the United States. The report is to consider provisions for market structure, oversight, consumer protection, and risk management. 

• Evaluate the potential creation and maintenance of a national digital asset stockpile and propose criteria for establishing such a stockpile, potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts. 

The working group is to hold public hearings and receive individual expertise from leaders in digital assets and digital markets. Additionally, except to the extent required by law, agencies are prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad. Any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States is immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives.  

The WBA Legal, Government Relations, and Communications teams will continue to monitor EOs issued by the new administration, and report on such matters accordingly. WBA will remain engaged with all federal agencies through the efforts started by the EOs, including in the most recent digital asset order. Any questions regarding the executed orders may be directed to WBA Legal at wbalegal@wisbank.com